Thread: Salmond refused to have an honest conversation with Scotland about currency because he knew it was a vote-killer.

Let's do what separatists won't and summarise each option:

A. Formal currency union is not an option - WM doesn't want it under any circumstances.

B. Every other option leaves Scotland without a credible LOLR and thus forces the Finance industry to leave. So read that into everything that follows.

C. Informal use of £ makes rUK-based banks the natural home for all the £ owned by Scots. It leaves the iSG with no control

over key policy, forces it to accept the inflation rate of the UK, & to attempt to borrow in someone else's currency.

D. Joining the Euro isn't an option, as it requires EU membership AND the existence of a sovereign currency and a central bank

E. Using Euros informally is an

even worse option than informal use of £. The rUK market is more important to Scotland's producers than the ROW combined, there is no point in burdening those transactions with FOREX risks & costs.

F. Instituting a new currency encourages capital flight as people fear forced

conversions & also want to see how the dust settles before buying in. It is unknown whether the credit markets will be interested in debt denominated in it. Add those points (along with the aforementioned loss of LOLR) into the following.

G. If the new currency depreciates

vs £, the 1 million Scottish households that have contracts for debt denominated in £ but are now being paid in the new, weak currency will have their life savings wiped out.

H. If the new currency appreciates, all of Scotland's producers are less competitive in the market that

is more important to them than the ROW combined. In both these scenarios, all of that cross-border trade is burdened with FOREX risks and costs and thus is less productive and profitable.

I. Pegging to the £ would make the previous 3 points go away. However, look at the example

of Denmark. I'm unaware of any country that is a more realistic model. They are Northern European, about the same size as Scotland, we have a lot of the same trading partners in common, indicating that we are exposed to similar levels of risk of exogenic shocks. They even share

a land border with larger currency with which they do the preponderance of their trade. Unlike us, they have a very experienced central bank policy team that has earned the confidence of the markets. And they find that they need £50bn in reserves. Those are real reserves, not the

dangerous borrowed or "swapped" novelties proposed by the amateur would-be central bankers at CommonWeal.

So that's the benchmark.

Scotland's share of the BoE reserves would be <1/3 of that sum. So, a new currency pegged to £ is simply not an option.

J. I hear this frequently: "Denmark HAS £50bn in reserves but they don't NEED it." This is nonsense. If Denmark thought they could get by with £15bn, why wouldn't the put rest to a productive purpose instead of having it sit idle, being wasted away by inflation?

K. Summary: any currency arrangement other than the one we have now damages the economy.

It is the primary reason why the costs of independence outweigh the benefits.